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Amazon drops California associates to avoid state sales tax

June 29, 2011 | 11:22
pm

This post has been corrected. See note at bottom for details.

Amazon.com dropped about 10,000 California-based associate sales partners late Wednesday so that it would not be forced to collect California state sales tax on purchases made through them. The tax is new and was signed by Gov. Jerry Brown on Wednesday as part of a plan to close a gap in the 2011-12 budget.

As passed, the law requires large out-of-state retailers to collect sales taxes on purchases that California customers make on the Internet. Those taxes were lowered by 1 percentage point to ease the implementation.

Amazon's associates, better known as affiliates or marketing affiliates, use Amazon to help sell their products and either pay a percentage of each sale to Amazon or collect a small commission from Amazon on each sale, depending on the arrangement....

Apart from losing the income generated by the affiliates, the company would still have to pay sales taxes on goods purchased by Californians directly from its site, assuming the law stands up to likely legal challenges.

Connecticut, Illinois, New York, North Carolina, Arkansas and Rhode Island have all passed similar laws requiring Internet retailers to collect sales tax -- sometimes called an "Amazon tax" -- and Amazon responded by dropping its associate partners in those states, CNN Money reported.

Only in New York state, which also passed a similar measure, has Amazon not dropped its associates; there, it has challenged the law in court.

"It's odd that a company would voluntarily dilute its business in the most populous state in the country simply because it's being asked to collect what is lawfully owed," Mark Hedlund, a spokesman for California Senate President Pro Tem Darrell Steinberg, told CNN Money.

According to two experts contacted by the Wall Street Journal, the California law is a likely candidate for a court challenge. California lawmakers maintain that it is designed to help level the playing field for brick-and-mortar retailers in the state.

[For the record, 6:16 a.m., June 30: An earlier version of this post incorrectly said Amazon had dropped its California sales partners late Thursday and that Gov. Brown had signed the legislation Thursday.]